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As we previously reported, the U.S. Department of Labor (“DOL”) released a proposed rule on February 25, 2016 to implement Executive Order 13706, which requires federal contractors and subcontractors to give their workers seven days of paid sick leave annually. The proposed rule comes on the heels of a number of state and local initiatives to provide paid sick leave to employees.

The DOL’s proposed rule closely tracks the Executive Order, and largely parallels its language and structure. The DOL currently estimates that, within 5 years, its proposed rule would extend paid sick leave to more than 800,000 employees, including more than 400,000 workers who currently do not receive any paid sick leave.

Covered Contracts and Employees

The proposed rule applies to the following types of contracts entered into with the federal government after January 1, 2017:

procurement contracts for services or construction covered by the Davis-Bacon Act;

contracts or contract-like instruments for services covered by the Service Contract Act;

contracts or contract-like instruments for concessions; and

contracts or contract-like instruments in connection with federal property or lands and related to offering services for federal employees, their families, or the general public.

The DOL has stated that the contracts and employees covered under its proposed rule are “nearly identical” to that under the regulations implementing the Minimum Wage Executive Order. Notably, under the proposed rule’s definition of “contract,” subcontractors would also be required to provide paid sick leave to any employees performing work on a covered contract. In addition, the proposed rule makes clear that paid sick leave must be offered to both exempt and non-exempt employees under the Fair Labor Standards Act (“FLSA”). The DOL anticipates that certain independent contractors will also be entitled to paid sick leave.

Sick Leave Accrual and Carry Over

Under the proposed rule, covered employees must accrue paid sick leave at a rate of 1 hour for every 30 hours worked. The rule, however, defines “hours worked” to include all time for which an employee should be paid (including, for example, an employee’s time spent on other kinds of paid leave). This definition is significantly broader than the definition of “hours worked” under the FLSA.

Covered employees must be allowed to carry over accrued, unused sick leave. The proposed rule does not clarify whether a contractor may, under any circumstances, limit the amount of paid sick leave that an employee can carry over. Accrued, unused paid sick leave must also be reinstated for employees rehired by the same contractor or successor entity within 12 months after a job separation. This is true even if the contractor previously paid out that employee’s paid sick leave upon termination.

Contractors are not required to pay employees for accrued, unused paid sick leave at the time of a job separation (i.e., a “cash-out”).

Permitted Uses

Covered employees may use paid sick leave for themselves or their family members, including:

for a physical or mental illness, injury, or medical condition;

when obtaining diagnosis, care, or preventative care from a health care provider;

when caring for a child, parent, spouse, domestic partner, or any other individual related by blood or affinity whose association with the employee is the “equivalent of a family relationship,” who has need for diagnosis, care, or preventative care, or is otherwise in need of care; or

for domestic violence, sexual assault, or stalking situations.

The proposed rule defines “equivalent of a family relationship” expansively. As a result, employees are permitted to use paid sick leave to care for a non-nuclear family member who does not necessarily have a biological or legal relationship to the employee, including a “close friend.”

Other Notable Requirements

The proposed rule requires employees to request paid sick leave, either orally or in writing, at least 7 calendar days before the need for leave is foreseeable, or, in the alternative, “as soon as practicable.” In addition, employees must provide employers with the expected duration of their leave.

Contractors may require an employee who is absent for 3 or more consecutive days to provide a certification from a health care provider (if the absence is related to a medical condition) or from an appropriate individual or organization (if the absence is related to domestic violence, sexual assault, or stalking).

Contractors are required to inform employees of a denial to a request to use paid leave (and provide an explanation for the denial) in writing.

Contractors may not discriminate or retaliate against any employee who exercises rights under the proposed rule or Executive Order. For example, contractors may not penalize employees under a “no fault” attendance policy for using paid sick leave.

Contractors who violate their obligations under the proposed rule may be debarred for up to 3 years.

Next Steps

The DOL recently extended the comment period for its proposed rule to April 12, 2016. The accelerated comment period for the proposed rule was originally set to end on March 28, 2016. The DOL has stated its intent to publish the final rule by September 30, 2016.

The DOL’s proposed rule is part of a larger effort by the current administration to encourage and implement paid sick leave entitlements. For example, in 2015, the DOL awarded $1 million in grants to help states and municipalities to conduct feasibility studies for paid leave programs. President Obama’s 2016 budget includes more than $2 billion in new funds to encourage states to develop paid family and medical leave programs.

Although Executive Order 13706 could be rescinded depending on the result of the November presidential election, the national push toward paid sick leave is unlikely to halt. Prior to 2014, there were only four paid sick leave laws in effect nationwide. Since then, California, Massachusetts, Oregon, Vermont, and numerous cities and localities have all passed paid sick leave laws. In addition, paid sick leave legislation is currently under consideration by the Maryland legislature.

Contractors should begin reviewing their sick leave and PTO policies for compliance with the anticipated final regulations. However, contractors must also be aware of any state and local statutes or ordinates that require paid sick leave for their employees. The DOL has specified that its regulations do not absolve employers from providing more generous paid sick leave as may be required under other statutory provisions.

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